The death of traditional media has been heralded ever since the advent of the internet and its ‘great giveaway' of information. But multi-managers are viewing media stocks as a savvy cyclical play in a world of expensive defensives.
Big media stocks have been riding high this year as companies have been able to find ways to generate paid-for content despite a weak economy.
The Dow Jones US Media Index is up around 36% since the start of the year which, compared to the fortunes of the FTSE 100 (up 7%) and the S&P 500 (up 20%), suggests media stocks have performed well.
Aviva Investors head of equities David Lis said valuations are beginning to appear attractive on the grounds many media outlets have more robust cash flows than the market perceives.
Read all about it! Should your clients be invested in media?
“Reed, Daily Mail and General Trust, and United Business Media all have strong market positions and exposure to more resilient business-to-business expenditure,” he said.
He also likes ITV, where pre-tax profits were up 6% to £348m in 2012 as chief executive Adam Crozier hailed double-digit earnings growth for the third year running.
“We are positive on ITV where we see the business model becoming increasingly attractive thanks, in particular, to the increased focus on quality content,” Lis said.
Shift to cyclicals
Cazenove fund manager on the multi-manager team, Joe Le Jehan, has had a “higher than historical” degree of media exposure over the last 18 months.
He said this reflects a shift in his view at the end of 2011 when he started to look at some of the more undervalued areas in the UK and European markets that had “more than factored in” the prevailing macro-economic backdrop.
“Our view that some of the more classically defensive areas of markets were beginning to look relatively expensive led us to look at some of the more cyclical areas of the market a la media,” Le Jehan said.
He has been using the likes of the Fidelity Special Situations fund, or the Schroder Income Maximiser fund in the UK to access media stock exposure.
“That theme - of a recovery in some of the more domestic facing cyclical value areas - over the last 18 months has obviously worked very well with a good degree of relative outperformance,” he said.
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Joined as head of strategy, multi asset, in June
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